This article originally appeared in the Dallas-Fort Worth Real Estate Review, Spring 2016. Part III of this series will appear on Dallas Innovates June 7. 

PART TWO OF A THREE-PART SERIES. READ PART I AND PART III. PANEL MODERATED BY CHRISTINE PEREZ.

THE PANELISTS:

BRYAN MARSH  As vice president, Bryan Marsh serves as Digital Realty’s Central region portfolio manager. He is responsible for strategic planning, acquisitions, development, operations, leasing, and financial performance of 43 buildings with 4.7 million rentable square feet.

BRYAN LOEWEN  Bryan Loewen leads Newmark Grubb Knight Frank’s global data center practice. He works closely with the company’s 300 worldwide offices to help companies develop business continuity plans and mission-critical strategies involving data centers, colocation sites, and hosting facilities.

BILL BURTON  As executive vice president of Hillwood Properties and Hillwood Urban, Bill Burton has been a key player in transforming AllianceTexas from raw ranch land to an 18,000-acre, master-planned development. He also was instrumental in bringing a Facebook data center to Fort Worth.

CAROLINE BRELSFORD  Caroline Brelsford is central regional director for CyrusOne, specializing in reliable enterprise data center colocation. A seasoned industry executive, she has helped the world’s leading brands reduce risks and costs associated with critical data center infrastructure.

BO BOND  Bo Bond is the managing director and co-leader of JLL’s global data center solutions practice team. A recognized industry leader with more than 24 years of experience, he has successfully negotiated more than 20 million square feet of real estate transactions in multiple states.

BRANT BERNET  As senior vice president in CBRE’s brokerage services group, Brant Bernet leads the firm’s data center team. He previously was a principal at Trammell Crow Co., where he helped pioneer high-tech tenant representation. He launched Rackhouse Group, which focused on data center site selection.

ANDY ABBAS  Andy Abbas, co-founder and vice president of Data Agility Group, which specializes in data and data center migrations, data center relocations and consolidations, and related services. He has been in the industry for over 30 years, holding IT executive posts at AT&T and Sears.

When social media giant Facebook selected a Hillwood site in North Fort Worth for its newest data center, reverberations were felt throughout the market. Hillwood chairman Ross Perot Jr. spoke about its impact at a ground-breaking event last summer:

“The fact that we were able to go through the Facebook process, which is very rigorous and very professional, and come out on top, shows the world that this is where you want big data centers to be,” he said. 

Those involved in the sector have long known this to be true. To get an update on data center trends in the region, we gathered some of the top minds in the business for a panel discussion.

Here’s what they had to say:

What kind of an impact does winning a brand like Facebook have in the region? 

BILL BURTON: For us, it has been outstanding. Facebook is a world-class company. They do a tremendous job. They have tremendous branding, tremendous reach. Their criteria are very, very strict and specific. They dive pretty deep, pretty hard. So when they’re looking at our site and they’re looking at our infrastructure, when they’re looking at our city, when they’re looking at the politics in the state — no stone is left unturned. They always told us they’d protect to the 1 percent of 1 percent, and that’s pretty deep. And so having them go through the process with us and validating the infrastructure program that we have in place, the skills and the talents that are in this area, and then the politics on top of that, I think it says a lot.

“[Facebook] always told us they’d protect to the 1 percent of 1 percent, and that’s pretty deep.” – Bill Burton

BRYAN LOEWEN: North Texas has been a tremendous data center marketplace, but the Fort Worth side has not seen the growth that the Dallas and Richardson side has seen. You see in data centers a lot of times the conglomeration of facilities. Facebook and their extreme due diligence process and everything else, is going to lead other companies to say that going west of DFW Airport, that there is a very strong infrastructure. There are land options. There’s a lot of uniqueness out there that I don’t think has been properly benefited to the community. So I think Facebook will probably be one of those pioneers to show the path for other corporations to say, “Look at facilities outside the traditional Richardson corridor.”

BURTON: Facebook was a huge announcement. But in addition, we have AIG, Citigroup, and Blue Cross Blue Shield, who have very significant data center operations. It goes back to the age of the infrastructure and the quality and the redundancy of the infrastructure. Texas being on its own grid, I don’t know that it alone is really that big a deal. But at Alliance, you actually have a location where the Brazos Co-op and Oncor come together at the same location. So you’ve got phenomenal redundancy from independent generating sources, and that’s a big deal. We also have locally- and regionally-looped water. We haven’t really talked about water, but water is a very big factor. Renewable energy is becoming more and more of a factor because of what companies want to operate as well. 

We talked about vertical growth. What other trends are we seeing from a development perspective? 

BRYAN MARSH: Bigger footprints, multistory buildings, larger data halls, and shared infrastructure, particularly on the mechanical side. We are also seeing customers that are asking for N and N+1 now on the UTF (unicode transformation format) side, the electrical side, where in the past they used to all be pretty much 2N. They’re willing to give up some redundancies in order to save money and reduce cost. The higher densities we talked about, you’re seeing a lot of new technologies there, in order to accommodate, like in-rack cooling, where you’ve actually got water inside the cabinets.

“I think one thing that’s universal is … you’re seeing less and less retrofitting.” – Bryan Loewen

LOEWEN: I think one thing that’s universal is — and this has been over the last three or four years — you’re seeing less and less retrofitting. The guys who had to put their data center inside of an office building and grow it over time, the light bulb is going off and they’re saying, “We need to move this out, move it somewhere that doesn’t have sprinkler systems and floor load issues and power issues.” They’re finding it’s easier, it’s cheaper, and more efficient to build from scratch. From a user’s perspective, you’re seeing a lot more options — not just in the Dallas-Fort Worth area, but really across the whole sector. You see a lot more customer-driven solutions that are allowing for optionalities that go beyond just your box and power-cooling space. 

“Right now we’re at a new frontier of helping the client truly solve, versus having to fit into what’s available in the marketplace.” – Bo Bond

BO BOND: I think what we see now from the providers is they see the benefit of larger, campus-type developments, being able to make that dollar go further. And then inside that box it is absolutely customization. I’m listening to exactly what the customer wants. I built a product that is flexible enough that I can absolutely handle the way you want to run your IT. The results have been great on the user side, which then translates back to the provider side, to the public markets, et cetera. It’s always fun to sit in the room with some very smart people dissecting the requirements and coming back with customized solutions. As we go from provider to provider, there’s a lot of time that the solution looks different. You really start to see light bulbs going off on the user side saying, “I just never thought of that.” Right now we are at a new frontier of helping the client truly solve, versus having to fit into what’s available in the marketplace. 

“Let’s not forget that data centers are the most sophisticated, most complex type of commercial real estate on the planet.” – Bryan Marsh

MARSH: Let’s not forget that data centers are the most sophisticated, most complex type of commercial real estate on the planet. So add a zero to everything. It’s because of the redundancies that are built into the system. So if something fails, there’s always a back-up for that. These guys, especially the brokers here—Bo, Brant, Bryan—you know, they can make a ton of money on commissions, much greater than any office deal or retail deal with the size of the transactions. I’m always amazed when it comes out with the list of the biggest real estate deals in Dallas that there aren’t more data center transactions on there. 

 Well, no one likes to talk about the data center deals. They like to keep them hush-hush.

MARSH: We should, though. Because sometimes we laugh when we see the size of some of those transactions on the office side compared to the deals we’re doing on the data center side. 

“More organizations are realizing that they don’t want to be in the data center business, and they’re consolidating their data centers.” – Andy Abbas

ANDY ABBAS: The online news source Data Center Knowledge recently published a report that said they’re seeing enterprises reducing their footprint by up to 50 percent. Now, that’s huge, because their computing requirements are not going away. So what are they doing with that reduction? Well, they’re going into co-location facilities. There is a huge data center campus in Dallas owned by an organization, and they’re actually moving to a co-location facility. More organizations are realizing that they don’t want to be in the data center business, and they’re consolidating their data centers. We had one organization we worked with that took 34 different sites and consolidated it into one. Now, some of those sites were closets, right? So they weren’t necessarily full data centers, but those types of moves are happening more and more.

BOND: Maybe volume of data centers are being shrunk, a number of them. But I think if you can compute the power behind it, the number of servers is growing astronomically. 

ABBAS: We’re talking about organizations that own their own data centers. 

BOND: Which, in my opinion, are very few and far between. They might have a cabinet closet here or there, and they’re seeing the benefit of consolidating. But when they’re doing that, the overall compute power is still growing at a rate that is a huge hockey stick. 

“The overall compute power is still growing at a rate that is a huge hockey stick.” – Caroline Brelsford

CAROLINE BRELSFORD: In 2001, the average back-office density per server cabinet was around, maybe, 1 or 2 kilowatts per rack. It’s not uncommon to see a back-office compute rack now 13 kilowatts up to 20 kilowatts per rack. So if anyone has ever heard the term “Moore’s law” and the compounding effect of that, we have definitely seen that. I think that CTOs, CIOs, and CFOs, to some degree, want to transfer the risk of that asset to an operator like us. It’s a risk transferral. It’s risk of either overspending capital or not spending enough if you didn’t get to market in time with your application. It’s the risk of downtime. It’s all these risks that if you can make it somewhat utilitarian and use an operator like one of us, that is sort of the trend we’re seeing. If you think about it, every refresh cycle since 2001 we’ve seen an up-kick in the kilowatts. The footprint might not necessarily grow when the client refreshes, but the density certainly does. If you’re owning and operating your own data center in an office building, you begin to run out of what room to move the air to just cool the heat dissipation for those systems.

“Ten years ago, a lot of trust wasn’t built in this industry. It wasn’t distrust, but the fear of the unknown.” – Bryan Loewen

LOEWEN: We spend a lot of time translating from CFO to real estate, CFO to legal, CFO to IT. That involvement by the CFO in decisions is because it’s such enormous cost and is becoming a bigger percentage of overall operations. As such, they’re evaluating should it be [capital expense] or should it be [operating expense]. If it’s cap ex, they may do it on their own site. If it’s op ex, they may choose to go and push these things to a third-party operator. As this industry has evolved into a very competent industry, there’s more trust that the risk can be shifted to someone else. Ten years ago, a lot of trust wasn’t built in this industry. It wasn’t distrust, but the fear of the unknown. 

BOND: For years, the CFO was worried about the most expensive item on the ledger, which was labor. The technological infrastructure is equally important today, managing that data. Obviously, it’s very important to recruit and retain talent, but to maintain the data that’s sitting on the server and then determining what to do with it, i.e., the big data concept — it’s very, very important. And that CFO is thinking about it all the time. That CTO, that CIO, they’re very, very integral into the direction of companies going forward. 

Earlier, we talked about Dallas-Fort Worth being the No. 2 data center market in the country in 2015. So what makes North Texas such a strong data center market? 

BRANT BERNET: Dallas is in the center of the country, so it’s easy to get to. We talked about power. Fiber is abundant. And despite the tragic tornado just after Christmas last year, we’re down at the bottom of Tornado Alley. We don’t really have natural disasters here. It’s a safe place to go. We have great diversity of working people. The total cost here for a colocation — if it’s not the bottom, it’s at the very bottom of the scale.

“The total cost here for a colocation — if it’s not the bottom, it’s at the very bottom of the scale.” – Brant Bernet

BOND: Definitely for a major metropolitan area. I think one of the critical factors outside of our airport, our labor force, our right-to-work state, permits, the abundance of developable land — just the backbone of Texas and ERCOT and our power supply is phenomenal. We can get inexpensive, very available power. That’s the backbone of what runs the data center. And to be fortunate enough to sit on our own grid where, basically, you have Texas and you have two sides of the country and that’s it. It drives so many of the larger user requirements that come here — they feel safe. And at the end of the day, those guys are sleep-at-night guys. Mitigation of risk is everything. And then you roll in the fact that 80 percent of the state of Texas is deregulated, so then the fact that you get to choose and negotiate a power price and model that works for you, is phenomenal. 

“[We’re] fortunate enough to sit on our own grid where, basically, you have Texas and you have two sides of the country and that’s it.” – Bo Bond

LOEWEN: One of the macro effects — and probably complements what Bo is saying — that DFW is home to a lot of major corporations, whether it’s their headquarters or regional headquarters. Subjectivity comes into play in so many data center site selection searches. When I say subjectivity, people will look at various regions. DFW has a lot of metrics that make it a very attractive space. 

MARSH: Dallas is the on-ramp to the Internet super highway across the southern United States. And that goes back to our history as a logistics hub, with the railroads and the interstate system. The fiber follows those routes. If you’re trying to get from coast to coast, Dallas is the place. Chicago is another hub, for the northern part of the hub. What data center users need is a diverse connectivity and a low latency— and they can get that in Dallas. 

“Dallas is the on-ramp to the Internet super highway across the southern United States.” – Bryan Marsh

BURTON: Is that related — what you were saying, the on-ramp to the super highway is about latency, right? 

BOND: It starts west and comes through Dallas, so it’s very beneficial. Take the online gaming community. A lot of that talent, a lot of development in the state is done out of Austin, but you’ll see a lot of the data centers here, and it’s because of latency. They have a [service level agreement] they have to deliver to the person who buys the game, and that they want all those images to not, as my kids say, glitch. They’ve got to deliver. It’s got to have low latency. It’s got to sit on that highway, and Dallas delivers that, whereas other parts of the state and country don’t. Big financial institutions, healthcare institutions, technology companies have to have an abundance in aggregation of fiber, and it’s a win to be here. 

“Take the online gaming community. A lot of that talent, a lot of development in the state is done out of Austin, but you’ll see a lot of the data centers here, and it’s because of latency.” – Bo Bond

BRELSFORD: The conditions in this ecosystem that you heard everyone describe for the area are creating a magnet for the technology companies to come in, even some of the startup technology companies. You’ll see more of that because we’re the foundation of that. When the data centers are in play, you’ll start seeing the market really attract its own little tech hub, if you will. It’s a very exciting time. 

MARSH: It’s not just one thing. It’s everything. You have to have it all. And that’s what makes Dallas great because it’s basically got it all. 

BOND: We check so many of the boxes. 

BURTON: And a pretty stable government, too, which is very important.  

READ PART I AND PART III.

For a daily dose of what’s new and next in Dallas-Fort Worth innovation, subscribe to our Dallas Innovates e-newsletter.